Private equity and venture capital often pride themselves delivering “higher returns” than investments in public markets. However, a closer look into the case reveals that measuring “returns” in private equity and venture capital is everything but trivial. First, despite the countless efforts of finance professors to ban it, the entire industry relies on the internal rate of return (IRR) to measure deal and fund performance. Second, the choice of an appropriate benchmark to compare PE performance against is challenging as risk and especially leverage of the investments should be comparable. And finally, PE fund managers have a large set of measures available to tweak the IRR and thus “improve” the performance of their investments and their funds. Against this background, we decided to devote an entire session of the lecture to the topic “performance measurement in private equity”.
This session is part of a broader lecture series surrounding the topic of private equity (PE).
Together with his guests Marcus Pietz, CFA (Head of Analytics, AssetMetrix GmbH) and Christian Tausch (Analytics, AssetMetrix GmbH), Prof. Dr. Bernhard Schwetzler (HHL, Chair of Financial Management) discusses “performance measurement in private equity”. AssetMetrix is a company specialized in structuring and providing data and other services to private equity and venture capital funds and investors. Calculating the performance of deals and/or entire funds and portfolios is thus an important part of their services. As Head of Analytics, Marcus Pietz has deep insights on challenges in providing appropriate performance data for investors. Marcus holds a Master’s degree in Finance, Accounting, and Taxation from the University of Bayreuth and is a CFA charterholder.
The following topics will be highlighted and exploratively analyzed in the session:
- Straight performance measures in the PE industry (money multiples, IRR)
- Finding appropriate benchmarks for PE investments
- Technical problems in PE performance measurement and benchmarking
The event language is English.